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Democracy and Trade Policy in Developing Countries
Democracy and Trade Policy in Developing Countries
Democracy and Trade Policy in Developing Countries
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Democracy and Trade Policy in Developing Countries

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Since the 1970s, two major trends have emerged among developing countries: the rise of new democracies and the rush to free trade. For some, the confluence of these events suggests that a free-market economy complements a fledgling democracy. Others argue that the two are inherently incompatible and that exposure to economic globalization actually jeopardizes new democracies. Which view is correct? Bumba Mukherjee argues that the reality of how democracy and trade policy unravel in developing countries is more nuanced than either account.

Mukherjee offers the first comprehensive cross-national framework for identifying the specific economic conditions that influence trade policy in developing countries. Laying out the causes of variation in trade policy in four developing or recently developed countries—Brazil, India, Indonesia, and South Africa—he argues persuasively that changing political interactions among parties, party leaders, and the labor market are often key to trade policy outcome. For instance, if workers are in a position to benefit from opening up to trade, party leaders in turn support trade reforms by decreasing tariffs and other trade barriers.

At a time when discussions about the stability of new democracies are at the forefront, Democracy and Trade Policy in Developing Countries provides invaluable insight into the conditions needed for a democracy to survive in the developing world in the context of globalization.
LanguageEnglish
Release dateJun 17, 2016
ISBN9780226358956
Democracy and Trade Policy in Developing Countries

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    Democracy and Trade Policy in Developing Countries - Bumba Mukherjee

    Democracy and Trade Policy in Developing Countries

    Chicago Series on International and Domestic Institutions

    EDITED BY WILLIAM G. HOWELL AND JON PEVEHOUSE

    Other Books in the Series

    THE AMERICAN WARFARE STATE: THE DOMESTIC POLITICS OF MILITARY SPENDING by Rebecca U. Thorpe (2014)

    THE WARTIME PRESIDENT: EXECUTIVE INFLUENCE AND THE NATIONALIZING POLITICS OF THREAT by William G. Howell (2013)

    THE JUDICIAL POWER OF THE PURSE: HOW COURTS FUND NATIONAL DEFENSE IN TIMES OF CRISIS by Nancy C. Staudt (2011)

    SECURING APPROVAL: DOMESTIC POLITICS AND MULTILATERAL AUTHORIZATION FOR WAR by Terrence L. Chapman (2011)

    AFTER THE RUBICON: CONGRESS, PRESIDENTS AND THE POLITICS OF WAGING WAR by Douglas L. Kriner (2010)

    Democracy and Trade Policy in Developing Countries

    Bumba Mukherjee

    The University of Chicago Press

    Chicago and London

    Bumba Mukherjee is associate professor of political science at Pennsylvania State University and a visiting fellow at the University of Notre Dame’s Kellogg Institute for International Studies. He is coauthor of two books: Democracy, Electoral Systems, and Judicial Empowerment in Developing Countries and The Politics of Corruption in Authoritarian Regimes.

    The University of Chicago Press, Chicago 60637

    The University of Chicago Press, Ltd., London

    © 2016 by The University of Chicago

    All rights reserved. Published 2016.

    Printed in the United States of America

    22 21 20 19 18 17 16    1 2 3 4 5

    ISBN-13: 978-0-226-35878-9 (cloth)

    ISBN-13: 978-0-226-35881-9 (paper)

    ISBN-13: 978-0-226-35895-6 (e-book)

    DOI: 10.7208/chicago/9780226358956.001.0001

    Library of Congress Cataloging-in-Publication Data

    Names: Mukherjee, Bumba, author.

    Title: Democracy and trade policy in developing countries / Bumba Mukherjee.

    Other titles: Chicago series on international and domestic institutions.

    Description: Chicago ; London : The University of Chicago Press, 2016. | Series: Chicago series on international and domestic institutions | Includes bibliographical references and index.

    Identifiers: LCCN 2015038334 | ISBN 9780226358789 (cloth : alk. paper) | ISBN 9780226358819 (pbk. : alk. paper) | ISBN 9780226358956 (e-book)

    Subjects: LCSH: Protectionism—Political aspects—Developing countries. | Protectionism—Political aspects—Developing countries—Mathematical models. | Democratization—Economic aspects—Developing countries. | Developing countries—Commercial policy.

    Classification: LCC HF2580.9 .M85 2016 | DDC 382/.73091724—dc23 LC record available at http://lccn.loc.gov/2015038334

    This paper meets the requirements of ANSI/NISO Z39.48-1992 (Permanence of Paper).

    Contents

    Acknowledgments

    ONE   Democracy and Trade Policy in Developing Countries

    TWO   Trade Protection and Electoral Malpractice in New Democratic Regimes

    THREE   Trade Protection and Electoral Fraud in New Democracies: The Empirical Evidence

    FOUR   Political Particularism and Trade Policy in Developing Democracies

    FIVE   Empirical Tests for Political Particularism, Trade Protection, and Contributions

    SIX   Democracy, Political Particularism, and Trade Liberalization in Brazil

    SEVEN   Trade Politics and Contributions in India and South Africa

    EIGHT   Conclusion

    Appendix: Mathematical Proofs

    Notes

    References

    Index

    Acknowledgments

    Many people have helped me in the course of writing this book. First and foremost, I would like to express my gratitude to the three editors who gently but persistently guided my manuscript to fruition as a book: John Tryneski, Jon Pevehouse, and David Pervin. Their immense patience, unstinting support, encouragement, and advice helped me to both improve and complete this book. I am fortunate to have found a home for this manuscript with the University of Chicago Press and would particularly like to thank Rodney Powell, Jillian Tsui, Jenni Fry, and Shenyun Wu for their help with preparing the manuscript. I would like to thank Sergio Bejar and Minhyung Joo for outstanding research assistance and am grateful to Benjamin Bagozzi and Raymond Hicks for their help on the project. I would also like to express my deep gratitude to the anonymous reviewers for both useful critiques and valuable insights that played an important role in the development of this book. Their guidance, feedback, and (in many ways) enthusiastic encouragement made this project feasible and provided the necessary motivation for completing the book. This book has benefitted considerably from their feedback. I take full responsibility for all errors and omissions in this book.

    This book was also inspired by colleagues and the manuscript improved substantially because of their active involvement in its development. While one lacks the space to list all the individuals whose advice was extremely useful, I would especially like to thank the following, whose feedback on related projects in conferences helped me to develop the ideas presented in this book: Helen Milner, Daniel Kono, Eric Reinhardt, Douglas Nelson, Jeffrey Frieden, David Leblang, Quan Li, and Dale Smith. Their contributions and feedback were invaluable. They pointed out what was valuable and not, shared new ideas, and offered feedback on related papers and projects, which gave me the courage to make major changes to the content, organization, and tone of the book. Some of the insights presented in this project are also partially drawn from earlier articles I published in the Annual Review of Political Science (with Helen Milner) and the Journal of Politics (with Quan Li and Dale Smith). This book has also greatly benefited from my work on other projects in International Economics and International Political Economy that were by colleagues at other institutions, including David Singer, Alexandra Guisinger, William Bernhard, and Mark Hallerberg.

    In my daily work on this book, I have been blessed with an extremely supportive family and a great group of colleagues at Penn State University. I am most grateful to my wife, Vineeta Yadav, for her unwavering support and am immensely thankful for company from my (now) 4-year-old son, Reyhan. At some point in the future, Reyhan will probably understand why I had to spend long hours working on this book rather than playing with him during the weekends. My extended family including my sister and in-laws also supported my work on this book in numerous ways. Finally, I dedicate this book to my parents, Usha and Bishwanath Mukherjee, who consistently made many sacrifices throughout their lives to ensure that I received the best possible education.

    ONE

    Democracy and Trade Policy in Developing Countries

    Lech Wałęsa made a remarkable speech in Poland’s newly democratized parliament (the Sejm) a few months after he won the first presidential election in December 1990. He noted in the speech that the birth of democracy in Poland would pave the way for economic freedom as well as significant reforms in trade and fiscal policies.¹ But the speech was not merely about how democratization promotes economic reforms. In addition, he emphasized that Poland’s entry into the global economy would strengthen democratic norms and discourage electoral malpractice in the country.² Wałęsa’s perspective was not new. During the Paris Peace Conference of 1919, President Woodrow Wilson often championed the idea that international commerce and democracy are closely intertwined.³ And in more recent years, President Bill Clinton explicitly stated in Between Hope and History, just as democracy helps make the world safe for commerce, commerce helps make the world safe for democracy. It’s a two-way street (1996: 36). Thus there is little doubt that political leaders often proclaim that democracy promotes economic (e.g., trade) globalization and that such globalization helps consolidate democracy by dissuading newly democratic leaders from rigging posttransition elections.

    Yet the idea that the transition to democracy facilitates trade reforms and that trade openness facilitates the consolidation of democratic practices such as elections resonates more deeply among scholars who study trade policy in developing countries. Students of international political economy (IPE) have in fact consistently predicted that democratization explains the rush to free trade across the developing world from the mid-1980s onward (Guisinger 2001; Frye and Mansfield 2003, 2004; Milner and Kubota 2005; Eichengreen and Leblang 2008; Tavares 2008; Milner and Mukherjee 2009). This claim is simple but powerful. After all, there has been a dramatic growth in the annual volume of trade flows across developing countries in the last two decades (see figure 1.1) because of sweeping trade reforms in developing economies. And the rush to free trade that engendered this surge in trade flows has occurred concurrently or immediately after the third wave of democratization (Huntington 1991). Some pundits have further noted that growing trade openness in the developing world tends to credibly constrain incumbents in newly democratized regimes from turning the clock back on democracy via electoral fraud.⁴

    Figure 1.1 Trade flows in developed and developing countries

    Thus numerous scholars and pundits subscribe to the optimistic view of a positive link between democracy and trade openness—a view that is also held by political leaders. Such optimism is, however, in stark contrast to another widely held but pessimistic perspective about the prospects of democracy and economic reform. This pessimistic viewpoint paints a more cynical picture of democracy and economic (including trade) reforms as being inherently incompatible (Przeworski 1991; Nelson 1993; Armijo et al. 1994; Haggard and Kaufman 1995). It also argues that greater exposure to economic globalization will jeopardize nascent democratic institutions in new democracies, thus creating more opportunity for electoral malpractices. As famously stated by Przeworski in Democracy and the Market, [Market] reforms . . . are socially costly and politically risky . . . they hurt large social groups and evoke opposition from important political forces. And if that happens, democracy may be undermined or reforms abandoned, or both (1991: 136). The fact that scholars hold conflicting views about the association between democratization and trade reforms is not surprising, as disagreements are part and parcel of academia. But the sharp divergence between the optimistic and the pessimistic perspectives delineated above leads to the following conundrum: Which view is correct? The answer to this question is not straightforward.

    Historical evidence from developing countries as diverse as Argentina, Brazil, Ghana, and the Philippines reveals that the transition to democracy indeed led to the vigorous pursuit of market-based economic policies (Dominguez 1998: 70), including trade liberalization, in these states. Furthermore, in contrast to the bleak prediction put forth by the pessimists, economic reforms economic reforms discouraged political elites in the aforementioned new democracies from manipulating elections in order to preserve democracy.⁵ However, the positive association between democratization and trade that occurred in Argentina, Brazil, Ghana, and the Philippines is neither common nor ubiquitous. For instance, democratization did not lead to trade reforms in Bolivia, Haiti, Nepal, Nigeria, Peru, Pakistan, and Turkey. The blatant rigging of election results also occurred in some of these states.⁶

    The variation suggested in the preceding examples is hardly unique. A careful examination of the relevant data shows that the relationship among democratization, trade policies, and electoral fraud in new democracies is more nuanced than suggested in the optimistic and pessimistic interpretations of democracy and trade reforms. To see this in detail, consider figure 1.2. This figure plots the annual average of the import duty coverage ratio (a common measure of tariff barriers) prior to and during the first five years after a democratic transition across a comprehensive list of fifty-six developing countries that have experienced a transition to democracy in the previous three decades.⁷ These fifty-six countries and the year in which they made a transition to democracy (as identified in the Polity V and the Przeworski et al. [2000] data sets) are listed in table 1.1.

    Figure 1.2 New democratic regimes and import duties

    Figure 1.2 shows that although import duties decreased in the first five posttransition years for 58% of the fifty-six new democracies, they increased or retained the status quo in the remaining 42% of the developing countries that also successfully made a transition to democracy. I find a similar pattern for nontariff barriers (NTBs) as well (see figure 1.3), since NTBs decreased during the five posttransition years for some new democratic regimes but not others. The data from the fifty-six new democratic states reveal another intriguing phenomenon (which, as I show later, is related to trade politics): namely, incumbents across a certain share of these new democracies (almost 30%) have engaged in electoral fraud by rigging the first postdemocratic transition election, while governments in the remaining new democracies have respected the electoral results from the first posttransition election.

    Figure 1.3 New democratic regimes and nontariff barriers

    Thus the aforementioned examples, figures 1.2 and 1.3, and the data neither fully confirm the optimistic perspective nor fully confirm the pessimistic viewpoint about democratic transitions, trade reforms, and electoral fraud in developing states. Since scholars hold sharply divergent views about democratic transitions and economic (including trade) reforms—that is, they believe that democratization has a positive or negative effect on trade liberalization—it is perhaps not surprising that relatively few studies have focused on variation in trade barriers across newly democratized states. The political consequences of this variation have also been largely overlooked in the literature on democracy and trade. This omission is unfortunate, as explaining why trade barriers vary across newly democratized states and analyzing the political impact of this variation could substantially enrich our knowledge about the political economy of trade policies in the developing world. Thus the first research objective of this book is to address the following questions that emerge from the examples and figures discussed above: Why do trade barriers decrease in the immediate years following a democratic transition in some newly democratic nations across the developing world but not others? What conditions influence incumbents in new democratic regimes in the developing world to adopt trade reforms? When are incumbents in new democracies more likely to respect the results from the first postdemocratic transition election rather than engage in electoral fraud?

    I develop a systematic theoretical framework in the following chapters that provides answers to these questions. These answers are also rigorously evaluated in the book. Before I summarize the theoretical framework and the empirical research design, it is important to note here that a full understanding of the link between democracy and trade policy in developing countries cannot be achieved by merely analyzing trade politics during the immediate postdemocratic transition period in new democracies. One reason for this is that newly democratized states do not remain nascent democracies forever. Instead, as indicated in the first column of table 1.2, over 70% of these new democracies have evolved into full-fledged democracies or, in other words, into newly consolidated democracies.⁸

    Apart from these newly consolidated democracies, we also know for a fact that many established democracies exist in the developing world, including Costa Rica and India. These established democracies are listed under the second column heading of table 1.2. Since many of these newly consolidated and established democracies actively participate in the global trading system,⁹ it is natural to ask what the observable pattern of trade barriers has been across these democracies from around 1978 to 2008.

    Let us briefly examine the map in figure 1.4 to answer this question. This figure classifies the average import duty coverage ratio (in percentage terms) into four categories, ranging from low to high protection, for all developing states that are observed as democracies (as classified by Przeworski et al. [2000]) in the 1972 to 2008 time period.¹⁰ The map shows that average import duties, a key measure of trade protection, varies significantly across newly consolidated and established developing country democracies. I also find that the variation illustrated in the map holds for NTBs for this set of democracies. What accounts for variation in trade restrictions across newly consolidated and established developing country democracies? When do governments in newly consolidated and established developing democracies reduce trade barriers?

    Figure 1.4 Import duty coverage ratio in developing democracies

    Scholars of international trade examine trade policy outcomes by often employing either demand-side accounts of trade, which explore the trade policy preferences and strategic behavior of societal groups,¹¹ or supply-side theories,¹² which analyze how domestic political institutions affect trade barriers. A handful of studies in IPE also combine these two approaches to explain the choice of trade barriers.¹³ There is little ambiguity in the fact that existing research provides deep insights with respect to explaining the political economy of trade protection. Yet extant studies are typically designed toward accounting for cross-sectional rather than temporal variation in trade policies in developed or developing countries. For instance, demand-side theories invest substantial effort in explaining how cross-sectional variation in factor endowments leads to distinct trade policies across countries.¹⁴ Numerous supply-side studies explore how different domestic institutions engender variation in trade protection across countries. While useful, existing approaches are not fully equipped to truly examine the temporal dynamics of trade politics in the developing world.

    Hence I develop two main theoretical stories to address this book’s two main research objectives and overcome the limitations mentioned in the preceding paragraph. The first theoretical story focuses on trade politics in new democracies and the impact that it has on the prospects of postelection fraud in these states. The second theoretical story develops propositions to explain variation in trade barriers across newly consolidated and established developing country democracies. I avoid choosing between the demand-side approach that examines the trade policy preferences of societal groups and supply-side theories that analyze the impact of domestic institutions on trade protection. Rather, each of the two theoretical stories in this manuscript is developed from a game-theoretic model that reconciles these two competing approaches to answer the book’s research puzzles.

    The first theoretical story is drawn from a game-theoretic model of trade politics in new democratic regimes that addresses the set of questions mentioned earlier about variation in trade policies across newly democratized states. This model explores how strategic interaction among political parties and two key productive groups in society—labor and capital (industry owners)—affects trade policy in the institutional context of a new democratic regime. The model examines how political dynamics in the immediate postdemocratic transition years (the supply side) interact with the factor mobility of labor and capital—specifically, the degree of interindustry occupational mobility of labor and asset specificity of industries (the demand side)—to explain the level of trade protection across new democracies in the developing world.

    A key contribution of the model is that it develops a unified theoretical framework that explores how electoral competition in new democracies and the leverage of interest groups that provide financial contributions affect trade policies in developing countries. By doing so, the theory provides a first step toward explaining the puzzle of variance in trade barriers across new democracies in the developing world. It also helps develop a general theoretical framework to explain trade politics in new democratic regimes. Furthermore, this theoretical story explains how (i) politics in new democratic regimes affects the amount of campaign contributions provided by industries that favor trade protection and (ii) trade reforms in new democracies influence the likelihood of electoral fraud.

    The second theoretical story is derived from an additional game-theoretic model that accounts for variation in trade barriers across newly consolidated and established developing country democracies. This model is motivated by a vast literature positing that political particularism has a critical influence on fiscal and foreign economic policies in developing country democracies.¹⁵ As suggested in this literature, particularism captures the extent to which political candidates (including party leaders) will seek to cultivate their personal vote during and after elections (Carey and Shugart 1995; Hix 2004; Hicken 2006). The term particularism is theoretically conceptualized as a continuum that ranges from a low to a high level (Wallack et al. 2003; Hix 2004; Johnson and Wallack 2005). Democracies that exhibit high levels of particularism are classified as particularistic (i.e., candidate-centered) systems. In particularistic democracies, political candidates have incentives to cultivate their personal vote and compete with candidates from their own party and other opposition parties (Carey and Shugart 1995; Mainwaring and Shugart 1997; Hix 2004). On the other side of the continuum, democracies that exhibit low levels of particularism are labeled as party-centered systems. In contrast to particularistic democracies, party leaders and members do not cultivate their personal vote in party-centered systems (Hix 2004; Hicken 2006). Instead, electoral politics in these systems strictly occur along the lines of interparty competition.

    Building on this conceptualization of particularism, the second model generates some theoretical arguments that focus on the link between political (i.e., electoral) particularism and trade politics. Yet this model departs from existing accounts of particularism and trade politics in that it analyzes how particularism influences the responsiveness of politicians to the demands of labor and capital when the trade policy preferences of these two groups is determined by their relative factor mobility.

    The model in this case is largely similar to the previously described model with one exception—it explicitly formalizes the extent to which politicians have incentives to cultivate a personal vote. It then examines how such incentives to cultivate a personal vote determine the responsiveness of politicians to the demands of labor and capital. The model does so by examining how party leaders in developing democracies that exhibit high levels of particularism design trade policies when the trade policy preference of workers is given by the level of their interindustry occupational mobility, and the trade policy preference of industry owners (capital) is determined by the level of asset specificity of the industries that they own. The details of the second theoretical story that emerges from this model are summarized below. It is worthwhile to note here, however, that this latter theoretical story allows one to identify the precise conditions that explain when and how particularism affects trade barriers and financial contributions by capital in democratic developing countries. The testable hypotheses and the main causal claims derived from each of the two game-theoretic models are empirically evaluated via a multimethodological approach. This approach includes statistical tests employing both large-n pooled data and within-country time-series data for trade barriers. It also includes the historical analysis and detailed comparison of three case studies. Finally, statistical tests are also conducted on firm-level survey-response data sets.

    The rest of this chapter is divided into five sections. The next section briefly explains why studying the politics of trade protection in developing countries is important. The Politics of Trade in Current Research section briefly reviews existing theoretical explanations for trade policy that are usually classified into demand-side and supply-side explanations. The section that summarizes the book’s theory and hypotheses describes the theoretical arguments that both indicate when newly democratic nations reduce trade barriers and address the link between electoral particularism and trade policies in developing democracies. The empirical research design section discusses the multimethodological approach employed in this book to empirically explore the main theoretical claims. The chapter ends with an outline of this book.

    Why Analyzing Trade Politics in Developing Countries Is Important

    Exploring the link between democracy and trade politics in developing states has substantive implications that speak directly to the relevant academic literature. It also has critical ramifications that go beyond the academic literature. From an academic perspective, first note that the two predominant schools of thought in the study of trade olitics—demand- and supply-side theories—largely focus on examining trade policy preferences and outcomes in either advanced industrial democracies or a mixed sample of developed and developing countries (e.g., Busch and Reinhardt 1999, 2000; Scheve and Slaughter 2001; McGillivray 2004; Hankla 2005; Mayda and Rodrik 2005). A small number of studies attempt to explain why trade barriers vary across democracies in the developing world. These studies are, however, restricted to democracies in Latin America or eastern Europe.¹⁶ Thus students of IPE have not to date systematically examined variation in trade protection in a global sample of developing states and democracies across the developing world. Unlike these previous studies, this manuscript combines the two main schools of thought in innovative ways to develop a full-fledged theory of the political economy of trade policy that applies to a global sample of developing countries. Integrating demand- and supply-side approaches to construct the theory has two main advantages.

    The first advantage is that it helps one to account for not just cross-sectional but also—as we will see later—temporal (within-country) variation in trade policies. This is crucial, as existing theories of trade politics offer valuable insights to explain cross-sectional patterns of trade protection but tend to underestimate temporal changes in trade restrictions. Explaining changes in trade policy over time (as done here) will arguably increase our ability to identify the precise conditions under which certain democratic institutions affect trade barriers. This will lead to less ambiguous and thus more accurate predictions about democracy and trade. The second advantage of integrating the two competing approaches is that it facilitates development of a theory that departs from existing polarized debates. Instead of choosing between these two opposing views about democracy and trade, this book provides a coherent theoretical explanation of when, how, and what type of democratic institutions influence trade policy outcomes in developing countries. This permits scholars to comprehensively understand the intricacies and nuances of the link between democracy and trade policy in developing states.

    That said, the analysis presented in this book is more than just an academic exercise. Rather, two key reasons relevant to the real world of trade policy making and international economic relations justify an in-depth assessment of the political economy of trade protection in the developing world. First, recall that figure 1.1 shows that the annual volume of trade flows in developing countries as a proportion of total world output has grown dramatically in the last two decades. Such increasing exposure to global trade flows that results from trade liberalization is likely to benefit some citizens in developing states, including those in developing democracies. But it will also have adverse distributional consequences. Indeed, greater exposure to foreign competition from increased trade openness tends to be costly for citizens who lack the skills to cope with globalization. Such costs can endanger fragile democratic institutions in developing states. The theoretical and empirical results in this book, however, provide some insights on how democratic governments can adjust to the costs of globalization and when democracy is likely to survive in the developing world. This helps us understand how fragile democracies can evolve into more consolidated democracies in the context of economic globalization.

    Second, the emerging role of prominent developing countries in international trade has made it more difficult for the developed north and the developing south to cooperate on multilateral trade issues at the World Trade Organization (WTO). For instance, it was widely believed that the three most prominent developing countries (which includes two democracies)—Brazil, China, and India—were responsible for the breakdown of the Doha round of multilateral trade negotiations in 2001 (Buiter 2003; Bergsten 2008). Similarly, in the Cancun round of multilateral trade negotiations, developing nations such as Indonesia and the Philippines demanded special safeguards to protect their economies. This is pointed out by Narlikar and Tussie (2004: 951), who state that at . . . the conference, the coalition came to comprise over 20 members . . . The groups, particularly under the leadership of Indonesia and Philippines, proposed that developing countries be allowed to self-designate certain strategic products that would not be subject to tariff reductions or new commitments.

    The demand put forth by Indonesia and the Philippines has escalated into a trade conflict and ensured that the Cancun round ended with little progress or agreement on trade issues (Buiter 2003; Narlikar and Tussie 2004). The failure of the Doha round of negotiations and subsequent Cancun meeting raises these policy-relevant questions: Which domestic conditions induce developing countries to adopt a more rigid bargaining position when negotiating a reduction in trade barriers with developed nations at the WTO? What prevents developed and developing nations from designing an optimal multilateral trade agreement that can benefit all parties?

    It is beyond the scope of this book to provide detailed answers to these questions. However, as discussed in the concluding chapter, the book’s overall analysis helps us explain when and why developing states are likely to stall multilateral trade negotiations. It also identifies the domestic political conditions in developing democracies that make it harder for these countries to strike a mutually beneficial trade agreement with other nations. As such, the analysis presented here may serve as a useful guide to policy makers who are interested in increasing the likelihood of cooperation in the issue-area of multilateral trade negotiations.

    The Politics of Trade in Current Research

    The literature on the cross-national determinants of trade policy constitutes a key area of research within IPE. This literature can be broadly divided into two schools of thought: demand-side and supply-side explanations for trade policy. Demand-side theories of trade policy can be further divided into three main categories. The first category focuses on societal demands for trade protection that result from economic downturns, unemployment rates, and exchange rate changes (Nowzad 1978; Magee 1980; Hughes and Waelbroeck 1981; Bergsten and Cline 1983; Bergsten and Williamson 1983; Shapiro and Page 1994). The second category concentrates on linking cross-sectoral variations in trade protection to particular characteristics of industries, such as sectoral size, import penetration, export dependence, and geographic concentration of industries (Magee 1980; Anderson and Baldwin 1987; Trefler 1993; Lee and Swagel 1997; Busch and Reinhardt 1999, 2000). More recent models on the effects of industrial characteristics on trade policies study how lobbying by industries exposed to import competition affect trade protection (Grossman and Helpman 1994; Baldwin and Magee 2000).

    The third category of demand-side theories primarily employs either the Heckscher-Ohlin (hereafter H-O) model or the Ricardo-Viner model to explain the trade policy preference and strategic behavior of different societal groups in the issue-area of trade politics (e.g., Rogowski 1989; Scheve and Slaughter 2001; Hiscox 2002; Baker 2005; Mayda and Rodrik 2005; Mansfield and Mutz 2009). According to some of these studies, the trade policy preferences of individuals, including voters, are determined by their degree of occupational specificity, education, income, their beliefs about whether or not trade openness is beneficial for them, and their sociotropic perceptions of trade’s influence on the national economy. Other prominent demand-side studies in the third category instead focus on understanding how factoral cleavages over trade policy, most notably between capital and labor, affect trade politics (e.g., Rogowski 1989) or how factor mobility shapes political cleavages associated with trade politics (Hiscox 2001, 2002).

    Existing studies of the empirical validity of demand-side theories typically employ cross-national surveys. These studies find that the trade policy preferences of citizens are influenced by their factor endowments, human capital, or sociotropic concerns (see, for example, Scheve and Slaughter 2001; Baker 2005; Mayda and Rodrik 2005; Hainmueller and Hiscox 2006; Mansfield and Mutz 2009).¹⁷ In contrast, a handful of studies empirically evaluate the effect of demand-side variables on trade policy outcomes in a sample of just developing countries. The few studies that test the impact of demand-side variables (e.g., factor endowments) on trade barriers in developing states typically use a cross-sectional sample of developing countries (Dutt and Mitra 2002; Dhingra 2009). The fact that these studies employ just cross-sectional samples limits the empirical generalizability of the results that they report. Additionally, concerns that demand-side theories place too little emphasis on state institutions has encouraged scholars to pay attention more recently to supply-side variables in trade policy decisions.

    Supply-side explanations primarily consider the relationship between domestic political institutions and trade protection. Some of these supply-side studies explore the effect of international agreements or institutions such as the General Agreement on Tariffs and Trade (GATT) and WTO on international trade flows or the settlement of interstate trade disputes (Busch and Reinhardt 2006; Tomz et al. 2007; Davis and Bermeo 2009). The more prominent supply-side explanations of trade policy, however, examine the relationship between democracy and trade protection or trade flows. Research in this issue-area indicates that democracies are more likely to have stable trade flows (McGillivray and Smith 2004) and lower levels of trade protection (Frye and Mansfield 2004; Milner and Kubota 2005; Eichengreen and Leblang 2008). Yet not all researchers agree with the claim that democracy helps reduce trade barriers. For example, Kono (2006) finds that democracies have a negative effect on tariffs but a positive impact on NTBs. Other scholars suggest that democratic governments are relatively more protectionist since they are more susceptible to demands for protection from interest groups (Garrett 2000; Yu 2006). As stated by Garrett (2000: 973), On the one hand, democracy makes leaders more accountable to their citizens, promoting trade liberalization to the extent that this is good for society as a whole. On the other hand, democracy also empowers distributional coalitions with intense interests, making higher levels of protectionism more likely.

    The possibility that democracy may not always promote free trade (as suggested by Garrett 2000) has motivated scholars to increasingly focus on variation in trade barriers across democracies. This has led them to analyze how different democratic political institutions account for variation in trade barriers across democracies. These institutions include electoral systems, the number of veto players, the degree of electoral particularism across democracies, political partisanship, and the number of effective parties in democracies (see, for example, Nielsen 2003; Hankla 2006; Henisz and Mansfield 2006; Ehrlich 2007; Kono

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